Fact Sheet | Proposals to Reduce Fossil Fuel Subsidies (2021) | White Papers

Table of Contents

Newer Version Available

See our latest white paper on proposals to reduce fossil fuel subsidies.

U.S. direct subsidies to the fossil fuel industry are estimated at roughly $20.5 billion per year, including $14.7 billion from federal subsidies and $5.8 billion from state subsidies. When externalities such as health, environmental, and climate factors are included, it is estimated the United States subsidizes fossil fuels to the tune of $649 billion per year. Eliminating fossil fuel subsidies would save taxpayer dollars while simultaneously reducing greenhouse gas emissions.

This fact sheet reviews President Biden's 2021 Executive Order 14008, Tackling the Climate Crisis at Home and Abroad, the Administration’s Fiscal Year (FY) 2022 budget proposal, and recent Congressional actions to provide an overview of potential ways to reduce U.S. government subsidies to fossil fuels.

Tax Expenditures

Executive Order 14008 calls for the elimination of fossil fuel subsidies in the FY2022 budget request and thereafter. The Biden-Harris Administration's FY2022 budget seeks to meet this goal by repealing 13 fossil fuel tax preferences, which would increase federal revenue by about $35 billion over the next 10 years. An additional $86 billion would be raised during the same period by reforming the taxation of foreign fossil fuel income. The Department of the Treasury explains that "these oil, gas, and coal tax preferences distort markets by encouraging more investment in the fossil fuel sector than would occur under a more neutral tax system."

Leases and Royalty Rates

The fossil fuel industry is also subsidized through inexpensive leases and low royalty rates on fossil fuels extracted from public lands. The below-market price of leases on federal lands starts at $2 per acre—a number that has not changed since 1987—and the onshore royalty rate has remained at 12.5 percent since 1920. The Congressional Budget Office estimates that increasing the onshore royalty rate to 18.75 percent for new parcels, which is equivalent to the offshore royalty rate, would raise federal revenue by $200 million over ten years. Executive Order 14008 directs the Secretary of the Interior to "pause new oil and natural gas leases on public lands or in offshore waters pending completion of a comprehensive review and reconsideration of Federal oil and gas permitting and leasing practices." Executive Order 14008 also calls for the consideration of coal, oil, and gas royalty adjustments to account for climate costs.

Fossil Fuel Research & Development (R&D)

The Department of Energy (DOE) has historically subsidized fossil fuels through research and development (R&D). Between 1978 and 2018, 24 percent of DOE’s R&D budget was spent on fossil energy. However, Executive Order 14008 calls for government agencies, such as DOE, to “take steps to ensure that … Federal funding is not directly subsidizing fossil fuels.” The FY2022 DOE budget request proposes to eliminate direct subsidies for fossil fuel R&D by reprioritizing or eliminating funding for the following programs:

Funding for the renamed Office of Fossil Energy and Carbon Management (FECM) would increase from $750 million to $890 million. The proposed budget re-focuses FECM funding "from traditional fossil combustion-centric activities ... to climate-centric activities," such as capturing carbon dioxide, accelerating clean hydrogen, and reducing methane emissions. FECM programs would no longer directly subsidize fossil fuels, in accordance with Executive Order 14008. Zeroing out funding for the Unconventional Fossil Energy Technologies and Gas Hydrates programs would reduce fossil fuel-related expenditures by $71 million.
The Title 17 Innovative Technology Loan Guarantee Program—which had $8.5 billion in loan guarantees available for advanced fossil energy projects in 2021—would now only encourage "projects that help achieve a carbon-pollution free electric sector by 2035 and net-zero emissions, economy-wide, by 2050." Funding for the Title 17 program would increase 517 percent, from $29 million to $179 million. The program, according to the budget request, is "ideally positioned to tackle the climate crisis" and would no longer provide loan guarantees for traditional fossil fuel projects.
The Advanced Technology Vehicle Manufacturing (ATVM) Loan Program would continue to receive $5 million under the proposed budget but would encourage "projects that support the transition to zero-emission vehicles" and exclude "projects that manufacture gas-only light duty vehicles" to avoid directly subsidizing fossil fuels.

International Financing for Fossil Fuel Projects

Between 2015 and 2020, the U.S. International Development Finance Corporation (DFC), DFC’s predecessor, the Overseas Private Investment Corporation (OPIC), and the United States Export-Import Bank (EXIM) provided over $13 billion for fossil fuel projects overseas. Executive Order 14008 calls for DFC and EXIM "to identify steps through which the United States can promote ending international financing of carbon-intensive fossil-fuel based energy while simultaneously advancing sustainable development and a green recovery." In April 2021, DFC committed to achieving net-zero emissions in its portfolio by 2040.

Congressional Efforts to Reform Fossil Fuel Subsidies (117^th Congress)

Legislation proposed in the 117th Congress to reform fossil fuel subsidies includes the following bills:

End Polluter Welfare Act of 2021 (H.R.2102 and S.1167), the most comprehensive bill, would eliminate several tax subsidies, prohibit taxpayer-funded fossil energy R&D, and update royalty rates and lease prices.
End Oil and Gas Tax Subsidies Act of 2021 (H.R.2184) would eliminate 11 tax subsidies, including the intangible drilling costs deduction and percentage depletion (see graphic for details).
Ending Taxpayer Welfare for Oil and Gas Companies Act of 2021 (H.R.1517) would raise onshore royalty rates to 18.75 percent and increase the minimum bid for onshore federal land parcels to $5 per acre.
Clean Energy for America Act (S.1298) would eliminate several tax incentives for fossil fuels, such as the intangible drilling costs deduction, and provide tax credits for the production of clean electricity.